China’s economic growth slowed to a three-year low in the fourth quarter as domestic demand softened, and while the full-year pace hit Beijing’s target, trade tensions and structural imbalances pose significant risks to the outlook.
The world’s second-largest economy showed remarkable resilience in 2025, helped by smaller-than-expected US tariff hikes and exporters’ efforts to diversify away from the United States, allowing policymakers to keep stimulus to modest levels. But demand at home further weakened since late last year as confidence has remained low amid a prolonged property crisis.
China’s economy grew 4.5% in the fourth quarter from a year earlier, data from the National Bureau of Statistics (NBS) showed on Monday, slowing from the third-quarter’s 4.8% pace as consumption and investment dragged.
Analysts polled by Reuters had forecast fourth-quarter gross domestic product (GDP) would expand 4.4% from a year earlier. Last quarter’s growth was the slowest in three years.
For the whole of 2025, the economy expanded 5.0%, meeting the official target of around 5%. Analysts had forecast 4.9% growth and the economy grew 5.0% in 2024.
China’s mighty manufacturing machine provided the much-needed economic lift. The nation last week reported a record trade surplus of nearly $1.2 trillion in 2025, driven by booming exports to non-US markets as producers diversified to offset tariff pressure from Washington.
But the reliance on external demand underscores vulnerabilities in China’s economy, which is grappling with weak domestic spending amid a prolonged property slump and persistent deflationary strains.
On a quarterly basis, GDP grew 1.2% in October-December, compared with a forecast 1.0% increase and a 1.1% gain in July-September.
INDUSTRIAL OUTPUT UP IN DECEMBER, RETAIL SALES DISAPPOINT
For December alone, industrial output rose 5.2% from a year earlier, faster than the 4.8% pace in November. Retail sales grew only 0.9% last month, compared with the 1.3% growth in November and analysts’ forecast of 1.2% rise.
Fixed asset investment contracted 3.8% in 2025, the first annual drop since data became available in 1996.
Property investment slumped 17.2% last year.
The 2026 economic outlook is clouded by rising global trade protectionism and by US President Donald Trump’s unpredictable economic policies. Trump has threatened to impose a 25% tariff on countries that trade with Iran.
Providing an early boost to demand, China’s central bank last week cut sector-specific interest rates and kept the door open for further reductions in banks’ cash reserve requirements and broader rate cuts.
At an agenda-setting economic meeting in December, Chinese leaders promised to maintain a “proactive” fiscal policy this year to support economic growth, which analysts expect Beijing to target at roughly 5% again.
Chinese leaders have also vowed to “significantly” lift household consumption’s share of the economy over the next five years, without revealing a specific target.
China’s household spending is less than 40% of annual economic output, some 20 percentage points below the global average. Analysts say China will need to boost household incomes, which have been slowing, and strengthen its weak social safety net to curb high precautionary savings.
The tepid demand has not been reflected in employment figures with the nationwide urban survey-based jobless rate staying at 5.1% in December, unchanged from November.
Falling property prices have also eroded household wealth, adding to the policy challenge.
The World Bank and IMF have long urged China to shift toward consumption-led growth and rely less on investment and exports, warning that the current model poses long-term risks. Beijing has moved to curb excess industrial capacity and eliminate price wars, but economists say more needs to be done.
